Guest Post – An ‘Ex-Vancouverite In Asia Considering A Return’ Lays Out ‘Why Vancouver Real Estate Prices Might be Justifiable’

The View from Asia: Why Vancouver Real Estate Prices Might be Justifiable
[A guest post kindly submitted by ‘an ex-Vancouverite in Asia considering a return’ (handle ‘BLM’), 27 Apr 2012.]

Like many of you, I too have been in shock and denial at the astronomical rise of Vancouver’s property prices. How could the city I grew up in, without the jobs to keep me there in the first place, support such exuberant real estate prices?

After nearly a decade living in Asia, I am now contemplating a return to Vancouver because there really is no better place to live – economics aside. I hope to share with you a new perspective as a prospective buyer of Vancouver real estate and to provide insight into the thinking of several investors I’ve conversed with here in Asia.

It all started back. Such a long, long time back.

The year was 2001, when the US Fed rate began the year near its historical average at 6%. By December it fell to 1.75% – the lowest in over 40 years. Alan Greenspan was steering the slowing US economy away from a recession following the bursting of the dot-com bubble and the 9/11 terrorist attacks. With rates that low for the next three years, the scene was set for hard asset prices to rise.

The rates did go back up very briefly to the 5% level in 2006 to 2007 but quickly returned to a historical low of 0.25% after the financial crisis of 2008. The rate today continues to stand at 0.25% and is expected to until well into 2014.

Simplistically speaking, this is why real estate prices in select cities around the world have become out of reach for many locals – not just in Vancouver.

Why are Vancouver property prices more adversely affected?

One could argue Vancouver is Canada’s most international city in terms of ‘main street’ capital flows (i.e. money earned in Asia but spent in Vancouver). Being on the Pacific Rim and acting as Canada’s strategic link to Asia Pacific means its economy will take on characteristics unique from other Canadian cities. Canadian economists only have hard Canadian economic data to work with which is why it has been so difficult to forecast and explain Vancouver’s economy (and indeed real estate prices)!

What about Toronto? Don’t they have large ethnic groups and immigration inflows?

The difference is in the foreign economies they link to and the quality of the capital flows. There are far fewer direct flights from Asia to Toronto than there are in Vancouver. This means, on a whole, Asians who immigrate to Toronto are less likely to maintain regular links to Asia and therefore fewer capital flows.

Why Asian ‘main street’ capital flows matter?

Asian economies are booming. For countries that aren’t, like Japan, they have huge aggregate amounts of savings that if deployed in numbers to any one country (think Australia), it would have a very meaningful impact on asset prices. What makes Asia’s economies matter to Vancouver, other than the ‘main street’ capital flows mentioned earlier, is perhaps their close reliance to the US economy and ultimately the US Fed rate. To simply put it, Asia’s booming economies, fueled indirectly by cheap US borrowing costs, is expediting a new wave of middle class savings and a new breadth of real millionaires and billionaires in the region (fact: there are more billionaires in China than in the US). This glut of savings, together with low savings interest rates coupled with low borrowing costs, in places like Hong Kong and Singapore have pushed domestic property prices up to become some of the world’s most expensive.

Why don’t they just buy more property at home rather than abroad?

For the wealthy in China, where there are limited avenues for investments other than stocks and property, many have begun to move some of their wealth offshore. It is also partly driven by the lack of trust in their own government and legal system. It doesn’t hurt that there are still living memories of the revolutions that began in the 40s which led to personal possessions being confiscated. Additionally, the Chinese government has been implementing policies to rein in domestic property prices making it harder for the middle class and the wealthy to invest in multiple properties even if they are financially capable in doing so.

Other regions such as Hong Kong and Singapore have also seen their governments implement policies making real estate investments less attractive for speculators and investors.

Limited investment options in China and extremely low interest rates in places like Hong Kong and Singapore are forcing capital to go offshore and back into the West.

Why are they choosing Vancouver?

So why are investors looking to Vancouver? To answer that, let’s put ourselves in the shoes of an investor in Asia looking to diversify their assets in real estate abroad in a politically and economically sound country.

Closer to home, you have Hong Kong and Singapore but prices there have become some of the world’s most expensive. Further abroad, you have time zone friendly Sydney and Melbourne but their prices too, along with their currency, have risen to what some call ‘frothy’ levels as a result of Chinese trade and Japanese capital. Then there is London, with its property priced in the expensive Sterling and New York with its tough immigration laws. These have been some of the more popular destinations for Asian capital to invest in which brings us to Vancouver.

Vancouver has no major policies to limit real estate investment . It’s currency is cheap relative to the Sterling and the Australian dollar. The Canadian dollar is also expected to appreciate which provides either a limited hedge to falling property prices or a bonus return on investment. Access to the city is easy with numerous airlines flying direct from a variety of Asian cities. The list goes on and on.

How did they acquiring their wealth?

No one can clearly answer that but if we just think of the thousands and thousands of companies in Asia (especially China) that have gone public in stock exchanges at home and around the world, it is not hard to imagine the number of affluent individuals in Asia.

Others have surely made their money in property along with the region’s economic rise. In Hong Kong, for example, the equivalent of a 400sqft 1 bedroom apartment in a similar district to Coal Harbour now goes for about CAD $1.2mn – thanks in part to Chinese money inflating the city’s property prices.

For some families who immigrate to Canada from Asia, it makes all the sense in the world to diversify their assets into Canada with the view of settling there. Some might even buy a few condos, lowly leveraged, to generate CAD income for their living expenses as a bubble popping in Vancouver is perceived to be no more likely than in Asia.

Brown barbaloots

Vancouver is not an exception where locals have been pushed out of the city core. This is a phenomenon that has been repeated many times throughout history. Today, in many cities across Asia, where there is a lack of a social safety net, high property prices are leading to street protests and influencing election outcomes.

Unfortunately, the wealth gap across the world has been widening for many reasons. Vancouver is not alone in that young couples are finding it hard to develop a career, start a family or to purchase their first home. In fact, let’s not forget these problems are more magnified in China, the source of hot Asian money, than anywhere else in the world.

Unless

Unless there is global economic calamity or unforseen restrictive policies towards immigration/real estate as an investment, prices are likely to tread higher, retreat slightly, or stabilize in the long term regardless of the ‘expected’ interest rate moves.

It is hard to see a scenario where Vancouver prices will ‘crash’ with supportive interest rates and rising Asian economies. What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation). Certainly the newly landed buyers and existing homeowners of SFHs do not appear to be. Yes, there were a few who took out 40 year mortgages and those who put down a 5% down payment but those days are long gone and prices have risen since then.

More importantly, the majority of the most vulnerable seems to be first time buyers who typically bought into the $250k-$400k range over the last 10 years in the lower mainland. Should there be a decline of 25% percent, a clear crash, even a $400k property would still be worth $300k. With interest rates this low, principals are being paid down rather quickly.

Foreclosures will be the first sign of real trouble, not price declines.

Covered bonds

The final thing I wish to touch on, as a keen observer of the bond markets, is Canada’s mortgage market in relation to covered bonds being issued by Canadian banks. Canadian banks are keen to expand their mortgage businesses in pursuit of profitability. However, this tenacity differs from that of the US sub prime crisis. Canadian banks have been active issuers of covered bonds, which unlike the toxic CDOs that US banks issued before 2008, are guaranteed by the banks’ balance sheets. With Canadian banks being some of the world’s strongest, many of the covered bonds they issue (which consists of mortgage loans) are rated AAA – the same credit worthiness as US treasuries, which are considered to be the world’s safest investments. Institutional investors are keen to buy as much Canadian covered bonds as possible given the lack of AAA bonds in the world and because of the expected currency appreciation of the Canadian dollar.

We can blame many factors for Vancouver’s high real estate prices but ultimately, through the invisible hand of the markets, it is only a result of the low US Fed rate.

My considerations as a prospective buyer with foreign assets

My wife and I have decided to return to Vancouver with our young family at some point in the future. The hope is to give them the same experience we had growing up – Canucks, PNE, Stanley Park, Granville Island, street hockey, camping, fishing, etc. This view is increasingly shared by ex-Vancouverites all over the world. Even some of the immigrants from Hong Kong of the 90’s who have since left Vancouver seem to have budding fantasies of returning once they have children.

We’re squarely middle class with decent savings and significant equity in our home in Hong Kong. Property prices here have appreciated with the same velocity as Vancouver. In our minds, we have several decisions to make. When to move and whether to move all or some of our assets back.

If we decide to move back this summer, we have the option of renting out our home here and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse. Or we could sell all of our assets here and look for a SFH completely paid off (or with minimal leverage).

However, if we decide to delay our move, we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans. So if we are to make an investment, it might as well offer some hedge for our future aspirations.

As a prospective buyer with foreign assets, I have two variables to consider: FX and real estate prices. This makes me see things very differently compared to a local buyer. Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.

I will be in Vancouver for vacation this summer and no doubt visiting some open houses. We shall see where the Canadian dollar stands and what the state of the real estate market is at the time. Stay tuned as I will report back in due course.
——-

Editor’s comments:

Many thanks to ‘an ex-Vancouverite in Asia considering a return’ (handle ‘BLM’) for submitting this carefully considered piece. We welcome all stories of the effects that the Vancouver RE market is having on citizens, and BLM generously shares with us his own considerations as he looks to buy property in Vancouver. He weighs information at his disposal, concludes that the market will remain strong into the future and, despite price levels that he’s found “shocking”, and price rises that he judges to be “astronomical”, he is planning to buy. This is all very important information to students of the Vancouver RE markets: If enough people continue to see what BLM sees, and act on their conclusions by buying, will the Vancouver RE market simply power upwards, relentlessly, forever?

BLM offered this piece for the sake of discussion, and he welcomes your thoughts on his opinions and circumstances; he also invited comments from vreaa, so here are a few thoughts and questions on some of the specific points he raises:

1. “I am now contemplating a return to Vancouver because there really is no better place to live…”
– The vast majority of us here know that Vancouver is a fine city. Welcome back.
When you say “there really is no better place to live”, is that based largely on a direct comparison with HK? Are there other places you’ve considered living?

2. We’d agree with the conclusion that easy money has caused the global RE price inflation, and that the Fed’s profligate ways were a central cause.

3. Are “capital flows” really that dependent on direct jet flights?

4. When comparing us with Australia, the Aussie dollar is not really that much stronger than ours, is it? And their real estate is similarly “frothy” compared to Vancouver, not moreso. In fact, aren’t we now ‘ahead’ of them in that regard, in some recent survey? (There are so many surveys, one can’t keep up). So it’s not that more expensive RE makes Australia less attractive to buyers outside the country. One difference of significance is that Australia has moved to limit off-shore ownership of RE.

5. More billionaires in China than in the US? I don’t believe that’s true. Wikipedia says 412 in the US vs 115 in China (2011). So, yes, there are rich people in China, a lot, but let’s not get too far ahead of ourselves (or underestimate the staying power of the US).

6. We have little doubt that, in the long run, China will become a stable and firmly established economic power. It’s already large, that’s for sure. Currently, however, we read much about China’s own (deflating) RE bubble, and about the shaky foundations of their GDP numbers; we hear credible commentators predicting a period of much slower real growth for China. Such a period of contraction would be expected to effect capital flows out of China, but by how much? Massive? Negligible?

7. Yes, the perception that the loonie will rise may make Canada more attractive, and the fact that it has been strong compared with the USD has made Vancouver RE gains seem even larger from outside of Canada.
But is this to remain the case? Couldn’t the loonie just as easily see 80c-85c US again before it sees $1.15c? If RE prices drop, and the loonie drops (the scenario we see as most likely),  how would foreign holders of Canadian RE respond? Buy more at ‘discount’ prices? Or worry that a Vancouver RE bubble has begun to deflate and hurry to sell? We’ll find out in the coming ‘grand experiment’.

8. “With interest rates this low, principals are being paid down rather quickly.”
– On aggregate, surprisingly not; it is stunning to consider, but total equity in Canadian homes has been falling despite increasing home values.

9. “With Canadian banks being some of the world’s strongest..”
– It’s a nice thought, and we know it’s gospel in some circles, but is this true? Or do they look strong because they haven’t been tested yet?

10. “What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation).”
– Not being overly leveraged doesn’t mean that an owner is not overly dependent on RE price strength.
Of the owners you know, what percentage of their net-worth would you estimate they have tied up in Vancouver RE? How dependent are they on rising or at the very least stable RE prices, for their financial futures? How will they respond to price drops of 10%? 15%? 20%?

11. We particularly appreciated the section where BLM shared his own considerations as a prospective buyer.

12. “We’re squarely middle class with decent savings and significant equity in our home in Hong Kong.”
– Great; you’re in a similar position to many Vancouver owners. Well, apart from the savings bit, that is… Most Vancouver owners are over-invested in RE, especially when age, net-worth, and retirement plans are taken into account. So, it sounds like you’re actually better off than most “squarely middle class” Vancouver owners with young families.

13. “…we have the option of renting out our home (in HK) and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse.”
– In which case you’d have no savings and own a property in Vancouver and a property in HK; with low leverage. What would you estimate your maximum downside risk would be in that scenario?

14. “…we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans.”
– We personally consider Vancouver pre-sale condos one of the worst investments imaginable at present. But, yes, the stock market is likely to be volatile through the next year or two (with significant downside risk). Why do your savings ‘need to be invested’ in one or the other?

15. “Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.”
– Are you sure that would lead you to act? Imagine a global deflationary wave, in which Vancouver property prices started falling, fell 15%, and the loonie dropped 10%. Are you sure you’d be looking to buy at that point? Would you be having any other thoughts in that scenario?

‘An ex-Vancouverite in Asia considering a return’ (BLM), many thanks for your thoughts and your story. Thanks, too, for your promise to keep us updated; please report back, we’ll be interested to hear how things play out for you, and we’ll headline your updates. All the best with all of your endeavours.

– vreaa

122 responses to “Guest Post – An ‘Ex-Vancouverite In Asia Considering A Return’ Lays Out ‘Why Vancouver Real Estate Prices Might be Justifiable’

  1. Basement Suite

    A post that makes total sense. In particular, your recognition that the sky is blue (i.e., it’s ALL about interest rates):

    “The year was 2001, when the US Fed rate began the year near its historical average at 6%. By December it fell to 1.75% – the lowest in over 40 years. … The rate today continues to stand at 0.25% and is expected to until well into 2014. Simplistically speaking, this is why real estate prices in select cities around the world have become out of reach for many locals – not just in Vancouver.”

    “This glut of savings, together with low savings interest rates coupled with low borrowing costs, in places like Hong Kong and Singapore have pushed domestic property prices up to become some of the world’s most expensive.”

    “It is hard to see a scenario where Vancouver prices will ‘crash’ with supportive interest rates and rising Asian economies.”

    “With interest rates this low, principals are being paid down rather quickly”

    Finally your summary:
    “We can blame many factors for Vancouver’s high real estate prices but ultimately, through the invisible hand of the markets, it is only a result of the low US Fed rate.”

    Thank you “‘an ex-Vancouverite in Asia considering a return” for speaking the truth.

    • Basement Suite

      Ps. You might also have laid much blame at Mark Carney and the Bank of “Canada”, but since they just follow the US fed, the underlying cause being the fed (and our lack of national sovereignty) is spot on.

  2. “The hope is to give them the same experience we had growing up – Canucks, PNE, Stanley Park, Granville Island, street hockey, camping, fishing, etc.”

    Street hockey is a relic of a bygone era. It does not exist in Vancouver anymore.

    • Street hockey is alive and well on our street in Langley.

    • Aldus Huxtable

      $45 for a lower bowl 2nd round playoff ticket in Phoenix, $20 for upper bowl. You know, just saying an average working person could afford to take their family out without sacrificing nutrition at home for weeks.

      • Isn’t the Phoenix hockey team losing $30M per season? You may like $45 per ticket, but that price is not actually realistic.

    • I grew up in Vancouver – Kitsilano – and have lived all of my live on the west-side. Street hockey was never a “thing” in Vancouver. You might see the odd game played with little kids or UBC students from back east but the reality is it is not, and never has been, a part of Vancouver life.

    • reality check

      Kids play street hockey on our street in Vanocuver

      • burnaby guy

        Street hockey is almost 24/7 at the sport courts and cul-de-sacs in Coquitlam, PoCo and Port Moody. CAR!!!!

  3. Not truth. I especially like the myth that Vancouver has a particularly high number of direct flights to Asia.

    • Depends on how we define Asia. There is a qualitative aspect we need to factor in as well in context to this debate. Sure LAX and SFO may have more direct flights to Asia but how many of those are transfers? Besides, economies in those cities are much more capable of absorbing foreign capital. Vancouver is after all still a small economy.

  4. Having lived abroad for so long and then come back, I know how you feel while you’re away. I know Hong Kong is not the nicest place to live and so wanting to go back has lots of good support (I used to live in Zurich – which is consistently rated in the top 2 – and has little downside risk, unlike Vancouver). Beware however – the city is not the same one you left and trying to re-create your childhood for your own kids is futile – partyl because you will find few children living in Vancouver now anyway.

    Agree with much of what you are saying but it is not formulated with all the most recent information and changes that have been occurring over the past few months – evidenced by your view which is that buying a pre-sale is one of the worst investments one could make in Vancouver right now.

    Thanks for the well thought-out post and it is true that with 100-200 people like you a month coming to Vancouver, we would not see any price reductions – it’s just that we’re not actually seeing that occur.

    • zrh – > Please clarify; your paragraph on pre-sales is ambiguous. Thanks.

    • zrh2yvr, thanks for the heads up. I don’t doubt that Vancouver has changed. I’ve seen Asia change phenomenally as well over the past decade. I have too. There are many reasons I hope to resettle in Vancouver. Family is one.

    • reality check

      There are tons of children on the east side.

  5. Thai-born Chinese Canuck

    As a Canadian, a Thai, and a Chinese, I wish him and his family best of luck in the Vancouver RE party. I look forward to returning to Canada as well but after learning about the madness going on in the runaway Vancouver RE and CHMC, I’d rather stay cool and watch the bubble pops from outside. Not all Asians are that upbeat about the Vancouver RE market.

    Unlike Taiwanese and overseas Chinese in SE Asia, almost all of the wealthy Mainland Chinese DO NOT have experience facing real post-bubble hardship. Having been through it in Thailand in 1997, I am more prudent and conservative. And I know well how the hardship post-bubble is like.

    If I were this ex-Vancouverite Chinese man and in need to raise kids in Vancouver, I would rather rent. I am not threatened by things like “buy now or be priced out forever”.

  6. 1.) There is no more street hockey
    2.) Canadian Banks were pre-bailed by government and kept very liquid through government transactions and the way that CMHC was used by them. – This era is now over.
    3.) Covered bond market is going to change and will not go forward like the past.

    — anyhow —

    I am doing my usual data digging. Over the past 3-4 weeks, there has been some additional bearish inflections deep in the data. Previously, we had really high inventory increases in areas which were generally high-priced – This meant that Vancouver and Richmond had larger increases.

    The biggest thing I noticed is that if you look at increases since January (and especially in March/April), inventory increases are now solidly occurring in the “sweet spots” of the market – those mid-priced condos and homes at the $1.0 million mark. This shows a real slowdown. You will see this in the fact that MOI and Inventory in Burnaby and North Van are now way up and sales have finally slowed there. Burnaby was first to slow with March being the big down month. North Van for the first time in the past year – now finally has really slow sales – we will likely not break 100 detached this month. Now – it’s still the tightest market with only 3.5 Months but it is up from 2.5 last month and 2.6 last year. (Burnaby is now 5 up from 2 last year and 4.5 last month). This has been progressively trending negative for about 6 weeks now. Finally, East Van (Van-East) has had a terrible month for detached sales. Falling close to 20% from last month and 25% year/year. These three areas became the go-to for young professionals who just “had to have a house” because it was financially possible – even if it was a 600,000 basement unit backing onto Knight-street. Now – you are getting these areas finally be the last to fall as the buyer pool is shrinking.

    The other was that when looking at sales in Richmond (which I follow closely because the fundamdentals there are so bad) you are now seeing really big discounting with last week having half of the detached properties selling under assessed value (a stat that I was not seeing until 2-3 weeks ago). I don’t know the mechanics of the HPI calc from the real estate board but Richmond must have a fall this month given the numbers coming out. It just has to.

    In reality, in Richmond, the “White” baby boomers who have purchased prior to 1985 and going back as far as you want to see – – are quite willing to take their money and run out of town and when seeing that there are really really few buyers out there, are now taking big discounts in order to move.

    In addition some (likely shallow-pocketed amateurs) builders are now somewhat motivated to sell after 6 months of really low inactivity.

    There are BIG CRACKS right now and we will see the changes start to come. Year-to date sales are now over 1,000 units behind 2008 – which as we all know, was not a great year. We should trend exactly like that your until September.

    • Basement Suite

      zrh2yvr I appreciate the detailed data mining, please do continue that.

    • zrh -> Many, many thanks. Please keep updating us like this. Will headlines versions. Thanks.

    • What do you see is fair value for Vancouver RE? Are we saying if volumes fall to 2001 levels that prices will go back to 2001 levels too? How do volumes compare now to say 2005 instead of red hot 2010/2011?

      10% declines very possible. 20% declines maybe. 30%-50% declines would take a black jack. Not impossible but you wouldn’t bet your money on it.

  7. BLM: Thanks for your thoughtful and detailed post. Vreaa, I share your commentary / critique (except your certainty that China will become a stable economy), so I won’t repeat them here. But I would like to nit-pick a few additional points in BLM’s post.

    BLM draws a parallel between historically low U.S. interest rates and high RE prices in Vancouver and elsewhere. He ignores, however, the utter implosion of RE in the U.S.—six years and running, despite continued low rates.

    I also differ with BLM’s view that Vancouver is the “best option” in the world. He casually skips through a few cities—namely Hong Kong, Singapore, Sydney, Melbourne, London, and New York, and leaves out the rest of the world. First of all, Vancouver is not remotely comparable to some of these places. Second, they aren’t the only available options! There are dozens of equally attractive places around the world. Despite his travels (limited?) Aeviacar seems to have retained the classic Vancouver ego.

    BLM asserts that being pushed out of the city is a “phenomenon that has been repeated many times throughout history”. Really? When? Where? I don’t doubt that there are specific neighbourhoods in every city that have gradually gentrified and forced locals elsewhere. But I don’t see the wholesale gutting of a city, such as happening in Vancouver, as a normal or sustainable scenario. In any case, if we are going to look to history for clues, let’s consider the ample precedent of booms and busts in real estate.

    Finally, BLM’s entire post is couched in official-sounding economic terms (“low-interest rates”, “diversify wealth”, “booming economies”, without actually addressing any fundamental economic metrics. Price-to-rent and price-to-income—two of the most-critical fundamental measures—are left out of the discussion. No doubt that some of the factors he cites are supportive of prices, but that doesn’t mean that sub-2% cap rates, or 11x income, are justifiable.

    Markets are made by different opinions, however, and I wish BLM the best of luck.

    • Basement Suite

      El Ninja: “BLM draws a parallel between historically low U.S. interest rates and high RE prices in Vancouver and elsewhere. He ignores, however, the utter implosion of RE in the U.S.—six years and running, despite continued low rates. ”

      He was not crystal clear but he did point out:
      “The rates did go back up very briefly to the 5% level in 2006 to 2007 but quickly returned to a historical low of 0.25% after the financial crisis of 2008.”

      If you look at a chart of RE vs. mortgage rates in the US, it is obvious that two solid years of upward marching rates burst that bubble. Once rates were slashed again, sentiment and financial woes kept it from re-inflating immediately, lucky for the US. But the rate spike popped that US bubble.

      • Basement: I’m sure the rate spike was key. I don’t know if it was the only factor, though. A lot of mortgages in the U.S. had locked in low rates that wouldn’t tick up until later. I would argue that market psychology played a huge role, too. When folks clued in that the whole mortgage game was crooked and unsustainable, there was a tectonic shift from greed to fear. This in itself was a powerful deflationary force.

      • Basement Suite

        Agreed there were other factors, psychology also being key. But the anecdotal evidence you hear about generally involves folks being unable to pay those rising monthly payments. They bought 2 million dollar homes on near interest-free rates, just like Canadians are doing now. When rates went substantially higher and mortgages reset, they were screwed, it was impossible to make the payments. I think higher rates was the biggest and first catalyst, among albeit a list of causes.

    • Cheers El Ninja. It’s been fun so far and a good dose of alternate views from mine.

      The implosion of RE in the US and the mayhem that followed could not be repeated even in a controlled laboratory environment.

      It’s important to take fear and emotions out when assessing economics. We need to get out of this mindset that all roads lead to a subprime crisis.

      The fact that most are so cautious about the RE markets that even if there were a crash, its effects would be profoundly different from that of the US RE crash.

      Vancouver real estate prices, as you suggest, are not justifiable. Few would disagree with that. The same goes for the price of gold which does not generate income or have much industrial use.

      What is happening in the world and for asset prices is unprecedented. Nothing can be ruled out for the time being with uncoordinated monetary policies around the world. Even hyperinflation could hit us one day making property prices further soar.

      We didn’t see how we could get to here so there is no telling what the future brings.

      • True, BLM. I’ll admit to not being able to make much sense of things. I’ve been wrong before, and will be again…

      • I’ll just add: It’s not that we will never recreate a financial crisis as bad as the 2008 one but that it would be difficult for the same exact circumstances and outcomes to play out again. We may very well at some point have another financial crisis with Canada front and center (collapsing commodity prices).

        We just can’t rule out interest rates won’t hit 20% or that they stay where they are now for the next 20 years (like Japan).

        Every crisis is different and all I’m suggesting is that we not get clouded by 2008.

      • First things first… Thank you very much BLM… and as for, …”no telling what the future brings.”… Indubitably.

        There are a lot of ‘wild cards’ out there… and complex conglomerate systems are, by nature, incomprehensible to solitary individuals.

        As regards strategic uncertainty… the biggest ‘WildCard’…

        [BloombergBusinessWeek] – Mystery and Rumor Dominate China in the Time of Bo

        …”And the fact that China’s wealthiest, including many corrupt officials, are increasingly opting for overseas citizenship for themselves or their family members, scares them, too. Last year more than 3,000 Chinese citizens applied for investor visas to the U.S., up from 270 in 2007. That’s 78 percent of the total applicant pool for this type of visa, according to U.S. Citizenship and Immigration Services.”…

        http://tinyurl.com/7m6ht2j

        [Note to DearReaders/Ed… an excellent Macro piece which is predominantly concerned with political risk and popular sentiments but nevertheless touches upon issues of interest to VREAA – from a GeoPoliticalAnalyst’s POV TheYellowEmperor’s timing is ‘most inconvenient’ when contextualized by RegimeChange elsewhere and synchronous global economic stress/shocks.]

      • Nemisis, I’m glad you brought that up. It’s something I’m watching very closely myself. Leadership changes in China, Russia, France and of course the US (+ many several other relevant countries) makes for an interesting year for geopolitics.

        China is the elephant in the room. If there is major political instability there, it would indeed be the mother of all wildcards.

        How much Chinese money would flood out to the world? Would China in recession bring the world into a depression?

      • “The implosion of RE in the US and the mayhem that followed could not be repeated even in a controlled laboratory environment. ”

        Umm hasnt RE market in Ireland emploded already? And Spain too? Pretty sure you gonna see Austraila, and Canada soon too. And apparently places in South America are booming/busting too.

        This is only the beggingin.

        I suggest you check out http://www.greaterfoolca. to really get anohter perspective.

      • Arshes,

        Ireland imploded. The US in 2008. Japan in the early 90s. Asia in the late 90s. All under very different circumstances that will not repeat itself in the same way and therefore we cannot predict the future as and when Vancouver’s bubble will pop, if at all.

        What’s a bubble popping? 25% drop? That would bring us what? back to 2009 for most SFH? How many of us were calling 2009 a bubble?

        For dramatic effect, how many people were calling 2004 a bubble? (I did)

        I don’t read greaterfool.ca because they play on our human weaknesses just like how news headlines horrific accidents to catch our attention.

        A dose of optimism is needed even in the very best of times.

      • No, 25%-off is not a bubble pop.
        Our bubble started in 2003.
        A bubble pop would take us back to real-2003 prices, perhaps below.
        50%-66%-off.

      • PS: You were right, and still are, about 2004 being a bubble.
        Nobody can time the top (though 2011 may have been ‘it’, in retrospect).

      • BLM, your comments are very interesting, but I found this statement to be very strange.

        “The fact that most are so cautious about the RE markets…”

        I don’t understand this statement at all. In Canada, very few people are being cautious about the RE markets, and that is a big part of the problem.

        Can you clarify what you meant?

      • Hey Nemesis, the political intrigue in the politburo is one thing, my guess is that, like any capitalist enterprise, the top is dominated by “numbers guys”, or at least I like to think so.

      • …”the top is dominated by “numbers guys”, or at least I like to think so.” – Dr. J…

        It is, Dr. J. Engineers positively abound in the CCP’s UpperEchelons (and fortunately, like all truly great NumbersGuzy/Galz – they chose a ShowMan to put on their OlympicExtravaganzaOpening)…

      • “The fact that most are so cautious about the RE markets” just means that there is greater awareness out there that leverage cuts both ways.

        It means even if the conditions were the same now as they were in 2008, the outcome would be very different. Characteristics of the flows of capital in the world have changed.

  8. I appreciate the micro perspective but the region of Vancouver is made of more than Asian-born rentiers. The argument here is that yields remain low because there are no other perceived viable investment options. Well if that’s the mentality — and I don’t doubt that is prevalent among recent immigrants and naturalized Asian-Canadians — on behalf of renters everywhere, thank-you for the wonderful gift of free money! Woe be to those who decide to compete with such mindsets on local wages.

  9. “Beware however – the city is not the same one you left and trying to re-create your childhood for your own kids is futile – partyl because you will find few children living in Vancouver now anyway”.

    renter experience is a much different experience than owner. Plenty of young families in my ‘hood – young couple with tot just moved in next door to me. Also seen three different street hockey games in the past few weeks – though typically they’re in the back alley, not the street.
    Again, for the blogging renter Vancouver is a horrible place with no future – this is not a typical opinion.

  10. Well… as it happens… this morning’s G&M has decided to ‘weigh in’ on the debate… and in the process, provided us with a truly juicy Quote ‘O The Day!…

    …”Canada’s not known as a vacation hideaway, but real estate agents have tales about foreign investors scooping up literally dozens of condo units at one time – tales that, if true, suggest there’s a fair degree of speculation in the market.”

    [G&M] – Are foreign investors driving up Canada’s housing prices?

    http://tinyurl.com/d6n3zat

    PS – the comments are particularly entertaining!

    • Sometimes I question why Canadians shouldn’t sell overpriced property. Load ’em up, but… then change the tax regime and start auditing and throw in a couple of hundred tax evasion extraditions. If this foreign investment thingy is a problem we have just solved the supply siders’ problem without a single ground breaking.

    • Has anyone else noticed that the issue of foreign speculation and “bubbly” housing market have become “national” issues of national importance now that Toronto real estate is affected? These issues have been forefront in Vancouver for 5 plus years, and no one in Toronto cared.

  11. VREAA – Appreciate the the opportunity to guest post and for the ensuing discussions. Would you mind editing the post to say that my handle is BLM? [Done. For the record, editor was not aware commenter ‘BLM’ was ‘ex-Vancouverite (etc)’. -ed.]

    I might not be able to respond to all discussions and to thank all your readers for their kind advice if comments continue to grow rapidly but I will stay well into the night here to at least carry on some discussion and to respond to your editorial comments.

    It’s a lot of reading but I am certain if your readers take the time they will get an incredible amount of on-the-ground information and some under documented perspectives.

    1. “there really is no better place to live..” is obviously my opinion which is skewed having been born and raised in Vancouver. Every city I go to, for pleasure or business, I try to speak to locals to get a sense of what everyday life is like there. I’ve been to a lot of cities in Asia and nothing has compared so far in terms of my subjective benchmarks. There are some European cities that I could see being comparable.

    3. Capital flows and jet flights can reflect economic ties between regions and act as a stimulus – which is quite clear. For wealthy Asians who still have a business interest in Asia, why would they choose Toronto over Vancouver, if all things were equal. Flights take longer to get there, normally requiring transit, and the time zone for business with Asia is at a disadvantage.

    4. There are many ways to compare currency strength as the nominal value means little. Generally speaking, the higher the interest rates, the stronger the currency. I would point out, if you are referring to the Economist survey that put Vancouver ahead of Sydney in terms of housing prices, that it was heavily based on income-to-home prices ratio (There’s a lot more jobs in Sydney, Australia and Perth to support housing prices there). Australia is feeling the full effects of a booming resource economy, as evidenced by its ability to keep one of the developed worlds highest interest rates. You’re right if it were not for foreign ownership restrictions, property prices there would be even higher.

    5. “More billionaires in China than the US.” I’ll have to stand corrected on this one. I’ve just started reading this book (http://bit.ly/IAfPrU) which does not cite where the information came from. I’m going to have to e-mail the author.

    6. China may or may not become stable. We don’t know. They haven’t paid the price of democracy yet (where as India has). Why is it that China’s property prices in Shanghai and Beijing are even MORE unaffordable to locals there than they are in Vancouver? Average wage in these top tier Chinese cities are about CDN $1,000 yet home prices are more expensive than most major cities in the US. It’s partly because of speculation on an appreciating Chinese currency and because people have no where to park their money – their local bond markets are in shambles. China’s economy is powering ahead but likely at a slower but still enviable pace. Money will continue to flow out and if it becomes even more trendy to diversify overseas or there is political instability, it will be interesting to see how that affects the global economy and especially Vancouver’s real estate prices – a rush reminiscent of the 90s just before the Hong Kong handover.

    7. The Canadian dollar can be volatile. You’ll see in charts that whenever there is a risk-off selloff in the markets, the Canadian dollar will drop. On the other end, whenever there is talk of China’s economy powering ahead the CDN raises on expectation of rising commodity prices. There are more catalysts for the CDN to go up than down and that’s about as close as you can get to forecasting.

    If a foreign investor who is parking money in Vancouver RE for the long term and is lowly or unleveraged, he is still sitting pretty with the gains to date and is averaging about 4% return on rental. 5 Years from now he has got 20 percent of his initial investment back and the odds are the CDN will be higher by then (if not, the investor could justify in his mind the world economy hasn’t grown meaning whatever he had bought would have likely made a loss).

    8. “Total equity in Canadian homes have been falling”: This is a really important stat to ponder and I’m glad you brought it up. There are more housing and more immigrants today than ever. The value of a dollar has depreciated in purchasing power and inflation has continued to grow, as it should. I don’t have the stats to analyze but when it says ‘aggregate’, it doesn’t take into consideration we are working with a larger population and a inflation rates.

    9. Canadian banks are healthy. They are the gold standard in all of OECD countries. You could argue they are even too conservative and haven’t unlocked all shareholder value yet. Obviously nothing is completely immune to black swan events but Canadians can sleep well knowing their banking system is solid.

    10. Directly and indirectly, I know a number of home owners and investors of Vancouver RE. None are dependent on rising RE prices to stay solvent. Many have owned for decades, others bought between 2001-2006 and a few who have bought in the last 12 months. A 20% drop would make them feel paper poor but there is no way they would lose their homes.

    12. Sure, middle class is a very large spectrum. I put myself ‘squarely’ in the middle of middle class. Wealth is subjective and a number can have a different value in the eye of the beholder regardless of their net worth.

    13. Downside risk for me if I can still manage a cashflow positive rental property in Hong Kong and a lowly leveraged condo or townhouse in Vancouver is that I can sell one or the other. There is some security in being diversified in two different currencies in two countries – or maybe not in this global economy.

    14. Obviously I would be selective with any pre-sale. I found the Marine Gateway and Telus Garden <$380K units to be quite good value. If I could get one of those $300K units there, it would seem to have limited downside (especially in my case). If prices tank by 25%, that's only $75K and I still have a property to rent out for income in an absolute worse case scenario. If prices fall because of higher interest rates, rental return should go up as well and the CDN should also be trading higher. At the risk of sounding overly optimistic, a lot of things would really have to go wrong for me to feel some pain because I am able to manage some loss.

    You ask why I have to be invested. Well, I don't believe in just keeping cash idle in the bank. It's not what's served me well to date. There is risk even in the best of times. It's important to use capital to work for you so long as you can manage the risks.

    15. Yes, if the CDN dropped 10%, I will have begun cost averaging my transfer from HKD to CDN. Just as we don't know where the top is, we don't know where the bottom is either. So I would be able to go against my instincts and buy in a down market and see it as value because, as you know, I plan to eventually settle in Vancouver.

    It's late and I apologize some sloppy writing.

  12. ask and you shall receive … perhaps headline-worthy in the context of previous discussion on the health of the canadian banking system and it’s purported lack of NEED …

    http://www.zerohedge.com/news/quantifying-big-five-canadian-banks-114-billion-bailout

    and as always – ben is on the mark (hanson that is – ha-ha)

    • Good VaudeVille demands a quick “OneTwo”… in that spirit…

      [Canadian Centre for Policy Alternatives] – Study reveals secret Canadian bank bailout

      http://tinyurl.com/c5kr4ld

    • [Canadian Centre for Policy Alternatives] – Living Wage for Metro Vancouver rises to $19.14

      http://tinyurl.com/bv9lvvw

    • [BC Ministry of Labour, Citizens Services & ‘Open’ Government] – Minimum Wage Fact Sheet

      http://tinyurl.com/2syhxq

    • Appreciate the link and a good read.

      No doubt Canadian banks were under stress under extraordinary circumstances in 2008. Even Fiji saw fewer tourists and the Moon gave up hope of welcoming another American astronaut in 2020 as ordered by Bush in 2004. So its effect extended well into our solar system.

      The Canadian government did as it should have in supporting our banks during extraordinary times. A rock solid bank doesn’t mean it can withstand a crisis that threatens to take down nations.

      It’s interesting that the article mentions that a Canadian bank accessed Fed funding. Actually, a lot of banks who qualified by operating in the US did! It was free money which they could take out and reinvest in US treasuries (safest investment earth) at a higher yield and pocket the difference! All sorts of banks from different countries, as long as they also operated in the US, took advantage of this free money.

      The CCPA report is good and provides some insight into what happened during the crisis but accordingly, they are labeled as ‘left leaning’ on Wikipedia which may or may not mean anything depending on how cynical one is.

      • ay carumba … svp, doucement le matin … faut quand meme arriver au travail! madam/sir, how your prodigious reasonings do test my temperaments … but only for their lack of brevity. to wit, a minor foil in this regard… permit me, being far less optimistic though not a pessimist by nature, to seize upon your simple and most elegant caveat … UNLESS.

        on the question of interest rate policy, central banking and other keynesian abuses, surely our other uncle al (insanity is to repeat over and over expecting different results) must be cackling in the grave … and then sobbing. one need not look far to appreciate the horrors – the battlefields of europe are already strewn with economic corpses – … yes, one need not look far but at least one eye open is a requisite. therefore, my view is that the risks are very great, if not the greatest ever … so to proceed forward in any enterprise without due consideration would be bold proclamation of … hmm … i must borrow here: SAFETY 3RD, DUDE!

      • A truly optimistic Austrian believer I’ve yet to meet.

        There are a lot of issues with the state of the global economy, no doubt. We’re at defcon 3, maybe 4….it can swing either way from here. We’re probably closer to a nuclear midnight strike than a total economic collapse.

        Now is probably not the best time to leverage up but I think many on this board are underestimating the wealth that is out there. Current home owners, new immigrants, new wealth from Canada’s commodity boom, etc…

        Even successful realtors who have been prudent with their earnings could probably buy select properties outright.

        Why all this caution as if everyone buying a $1m home is only putting 5% down?

      • @blm. your comment somewhat tangential to the pt at hand – my optimism, or lack thereof, is diverting. to inform, i do confess susceptibilities to the austrian arguments. but these are not faith nor doctrine. they are only common sense and rigor applied to the economic pb. if that it is the accusation, it is a conviction to gladly suffer. each is free to seek out and decide for herself or himself. the pt at hand was proper consideration before proceeding. to my eye the evidence is overwhelming … i will take risks … but i will take them elsewhere.
        ps. now really, how many silly, annoyingly playful, perverted, non-serious pessimists have you met?

      • @Chubster… It’s PartayTime! and you’re selecting your ‘Posse’…

        Austrians or Keynesians… Come on now, BeHonest!…

        And for BLM re: “We’re probably closer to a nuclear midnight strike than a total economic collapse.”…

        Here’s your answer…

        http://tinyurl.com/7p8sycj

        PS – They’re such optimists… [it’s the LateNight PartayLifeStyle while minding the gizmos]…

      • nem … dude. just rereading my post … omg … had an imperious quality … yeesh … h-e-v messing with my programming – damn her for being right … will sort it out … just no one aks me respet they authoritah
        http://tinyurl.com/26beqeb

  13. BLM, obviously having a place to live is important when moving back to Van. However, buying a place to live should not be a priority at these historically high levels. They will either flatline or go down, they won’t rise further in the near to medium term. Renting is cheap compared and who needs a large debt hanging around your neck when you are dealing with a stressful life changing move.

    What should be a priority is income and employment, connect and establish your networks for work before jumping ship from HK. If you are planning on starting a business here, do the research now and plan accordingly.

    It sounds like you currently have a lucrative employment situation now, this may not be the case when you move back unless you take action and get yourself set up.

  14. Loon – thanks, really good advice I haven’t heard from anyone yet. It hasn’t crossed my mind to rent in the short term and given there are so many new buildings in town, and some saying the city has changed so much, I shouldn’t rule out renting first.

  15. This is a just a little off topic. I always hear how the Chinese government limits the wealthy from buying multiple properties and that’s why they end up buying multiple SFHs in Vancouver.

    Why is it that an autocratic dictatorship put policies in place that protect the middle class and keep them from being priced out but out “Democratic” institutions don’t do the same? To my knowledge there are no safeguards in place in Vancouver or BC to keep the rich dumping their money into our real estate and playing monopoly with it. To add insult to injury, more and more it seems to be the Overseas investors taking advantage of this loophole. I just wanted to know if anyone has ever got a meaningful response out of any polictician regarding this. It never gets mentioned by the media, and is just a given that the rich are allowed to buy up as much property as they can afford, with only the pathetic $570 home owners grant to help out those who are living* in their homes.

    * Obviously many overseas people are not actually living in their homes, but they will gladly pretend to do so if it saves them some Canadian Tax.

    • China is a ball of contradictions.

      To impose foreign ownership restrictions on Vancouver RE would take political will at a provincial/local level. GDP would slow, tax revenues would decline and unemployment would go up.

      A politician will need to grow a serious pair of balls to push something like that through and I’m not sure Kristy Clark can :/

      Personally I advocate for an additional 5% Property Transfer Tax IF the property is resold within 2 years. That would cut out short term speculators but keep end users and longer term investors in the market.

  16. “Canucks, PNE, Stanley Park, Granville Island, street hockey, camping, fishing, etc. This view is increasingly shared by ex-Vancouverites all over the world. Even some of the immigrants from Hong Kong of the 90′s who have since left Vancouver seem to have budding fantasies of returning once they have children.”

    When I moved back to Vancouver, after years away, I checked out Granville Island and the PNE. Both disappointed, especially the PNE. Maybe its just because I’m older and don’t have children. I mean Granville Island is nice if you live downtown (and avoid the lowend food booths), but its not worth travelling through Vancouver traffic and finding a place to park. PNE literally had grease in the air, and seems rundown and trashy.

    • That bad, huh? Why is everyone in Vancouver dissing the city? I’m beginning to feel like a foreigner that’s not welcomed.

      • Not horrible, but watch-out how much you play-up those memories in your head. There are many redeeming features about Granville Island, even a few still at the PNE, but the traffic and parking issues can make them seem so far away from the suburbs.
        Stanley Park is still quite nice though, and worth taking vistors to hang-out for the day.

      • People are dissing the city, not you.

      • “Why is everyone in Vancouver dissing the city”?

        BLM,

        To quote myself:

        “I often hear these arguments against Vancouver from renters. Here’s what it sounds like to me…you sound like jilted lovers who’ve been kicked to the curb by Ms. Vancouver. You’re looking for reasons why you didn’t want to be with her in the first place – and that it’s your decision you’re no longer dating”.

        Don’t try to get a snapshot of Vancouverites from this site. Just a bunch of grouchy renters here.

      • Anonymouse

        What sort of fool drives to Granville Island?

    • “PNE literally had grease in the air, and seems rundown and trashy.”

      A great mainstay in an otherwise sterilized city plan.

      • I agree, in a way I’m glad its still there. But is that all that passes for “character” in Vancouver? Also, certain things I loved about the PNE as a kid are long gone (demolition derby RIP).

      • Or, for one night only, Super Cats.

  17. BLM -> We shouldn’t get “clouded” by 2008, agreed, but at the same time we shouldn’t forget that Vancouver RE dodged a bullet in 2008, more by strange fortune than anything else (our housing started deflating and was ‘rescued’ with free money because of other crises, before it’d even dipped 10-15%). In other countries, much of the speculation that built up from the low Fed rates of the early 2000’s have been wrung out — US housing is probably within 20% of a bottom, etc. In Vancouver, all of that fresh air supporting the market is still there. ‘2008’ hasn’t really happened here yet.

    • As it stands, it makes more sense to look east and watch Asian economies to forecast Vancouver’s real estate prices. The city is unique in its economic linkages compared to every other North American city.

      For Vancouver the ‘canary in the mine’ is Asia.

      Taking a wild guess, I would peg Vancouver RE price are 40% driven by foreign money (HAM and new immigrants) and 60% locals.

      What we don’t know is whether the ‘fresh air’ is here to stay for another 2 years (as the Fed has targeted) or another 20 years (like Japan).

      The stakes are certainly higher at this time for leveraged buyers but the catalyst for the dangers we all fear are not supportive as of now.

      • “I would peg Vancouver RE price are 40% driven by foreign money (HAM and new immigrants) and 60% locals.”

        If local incomes cannot afford to purchase local real estate then foreign-derived income must completely fill the void to keep prices high. This is the tenet of marginal pricing and is core to understanding why aggregate prices are almost assuredly going to fall significantly from current levels. If the split is 60-40% local-foreign then yes foreign money will keep prices higher than they otherwise would but the effect will be small, on the order of a few %. Why?

        Think about this: say 60% of locals decide that prices are too high and cannot or will not buy. That means 60% of sales volume evaporates overnight. That is on the order of tens of billions of dollars of pent-up demand that must fill the void on an annual basis from now until the entire market is consumed by foreign interests. That is on the order of 10% of provincial GDP of capital inflows into residential property.

        If the market were say 80% foreign then the market would be somewhat stiffer but given the majority of purchases are by locals or by immigrants who are mostly earning local incomes (most of the data I see show immigrants are not all cash wealthy on entry) there is little chance for foreign interests to fill the void. This is backed up by statistics on average debt loads borne by BC residents increasing alongside prices.

        Again — I cannot stress this enough — the simple but powerful concept of marginal pricing is tantamount in understanding why prices cannot stay high without continued accumulation of debt.

      • “Taking a wild guess, I would peg Vancouver RE price are 40% driven by foreign money (HAM and new immigrants) and 60% locals”.

        whatever % you designate you need to look at the mix. HAM not buying condo or attached properties so the mix for detached is a much greater %. If you assume this is true you need to conclude that detached market segment is less dependent on financing…makes sense if you consider local incomes don’t match prices.
        Canary in the coal mine are the developers. When you see them discounting product to get it out the door then you may see some discounting on land (but don’t expect much). First to fall will be condo.

      • HAM most certainly is buying condos.

  18. BLM,

    The covered bonds gained AAA rating due to the guarantee by CMHC. The rules will (have?) change soon so that no more such guarantees will be available. There are anecdotal stories that banks have been tightening mortgage approvals which makes it harder for borrowers to qualify for the posted low rates.

  19. gokou3, that’s right, legislation will be passed in June for formalities.

    But…

    Even without CMHC’s gaurantee (which in effect is the government of Canada’s gaurantee), there will be no problems selling the covered bonds at low rates. Canadian covered bonds, for investors of these type of bonds, offer scarcity value. There is also increasing demand for highly rated bonds as Basel III rules are enacted. This means banks all over the world are being forced to hold more high quality bonds for which Canadian covered bonds fit the bill.

    • Agreed here. Removing the CMHC-government guarantee from covered bonds will kick out spreads a tad but there isn’t much else to compete with. The big punch comes when capital buffers for Vancouver-based loans are ratcheted up. I don’t know if recent investors in Vancouver understand how lending is going to be changing in the coming 1-2 years –I think capital is going to become more scarce than it is now, but that does not necessarily mean higher rates.

      • capital is in far shorter supply than appears … this is the central ruse of central interest rate policy … the road does end eventually … of interest (sad!) are serious admonitions by sensible folks, not alarmists, the end is in sight … i appreciate most mr. stockman but mr. grant is our day’s monetary jon swift

      • ee chubster, the party ends one way or another, the government is attempting to institute last call. No doubt a few will get angry with being cut off but it’s for their own good.

        I do so love BC but not so much at 1:30am in a club. Normally I’d blame the water but I doubt most of what’s being consumed comes from local watersheds.

      • party!!! woo-hoo! i blame the most cruel and tyrannical hare epte vesta for having placed me in this self-imposed strait jacket … to behave! … i preferred the other persona so much more … however, i will concede her the value of maintaining a higher sense of decorum for useful discussion …freedom is a tyrant worth serving, i suppose … dr.j, sir_nem, jm o-flaherty, gourd, vreaa-host et al … may i indulge you in how i imagine mr. hare epte vesta? …

        revenge! ciao-out. and now … back to the sasquatch excrement … most fragrant 🙂

    • Just because a security is rated triple A doesn’t mean it’s a good investment. Most of the CDO products that melted during the US subprime crisis were A and higher rated by design and agency rating. Rating migration probabilities are not set in stone. Furthermore, some might be pretty suprised at the amount of mortgage debt ordinary Canadians are carrying (especially in Vancouver). I wouldn’t touch Vancouver packaged debt with a ten foot pole.

      • Difference: toxic CDOs where not guaranteed by banks who sold them. Canadian covered bonds are guaranteed by the banks who sell them + CMHC which in effect is the government of Canada.

        If your job was to only invest your fund in bonds, as the world’s largest institutional investors do, there is little choice of safety. Canadian bonds are attractive even without CMHC’s guarantee.

  20. We too are Canadians that returned to Vancouver after a lengthy stint in Hong Kong. We were yearning to come back to Vancouver for all the reasons BLM mentioned, family, a sense of community, setting down roots, good schooling for our daughter etc. However, we packed up and went back to Hong Kong last August after 3 years in Vancouver. I would strongly urge you to make sure you have employment lined up before you return. My husband, the breadwinner, was unable to find work even though he had years of Asian experience that one would have thought would make him highly employable in Vancouver. In hindsight, we probably made the mistake of not moving back to Coquitlam where family live, but rather chose to move to West Vancouver, as after all those years in Asia investing and saving, we wanted to finally enjoy all Vancouver has on offer without a long drive etc. All I can say, is thank god, we did not buy property as planned, but rented. We found Vancouver to be expensive in general, real estate aside. We found our community to be unfriendly, there were no street games of hockey, neighbors were pleasant but not interested in cultivating friendships, in fact many houses were empty. Our community felt like it had no soul, a product i believe of the frenzy of real estate speculation. All in all, a lonely existence. I’ve posted here at length before, ranting at the disappointment and frustrations of living in Vnacouver, so I’ll save the repetition. However, I did want to mention that as expats we tend to look at our home countries through rose tinted glasses and unfortunately the place that stays in our heart while we are away changes, not always for the better. To sum up, my husband was offered a great job back in Hong Kong last summer. For all its faults, Hong Kong has given us a very high standard of living, opportunities to vacation in exotic locations very easily (unless you are happy with Hawaii or Mexico, you will find that vacations quite difficult and expensive to coordinate from YVR) and the income to travel back to Vancouver regularly to visit family.

  21. Similar story here, DM. Moved back to Van after 11 years of work/saving/home ownership in the USA. Husband telecommuted back to his lucrative and exciting US job for 6 years. Last year, his project wound up, and he looked for work in the Lower Mainland. Ugh. 3 offers. Low salary/benefits. Small, uninteresting opportunities. He’s back working in the US (West Coast this time) and we are planning our exit strategy. We won’t be back to Vancouver this time.

  22. 13. “…we have the option of renting out our home (in HK) and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse.”
    – In which case you’d have no savings and own a property in Vancouver and a property in HK; with low leverage. What would you estimate your maximum downside risk would be in that scenario?
    …………………………………………………
    Singapore is even lower at 1.49%
    http://www.dbs.com/sg/personal/homeloans/mortgage-rate-protector/default.aspx

    And I heard that their CD/retirement savings rates are at 4%-6%.

    Amongst all the positive reasons to buy this year or in the coming year, returning expats very quickly found out that our health care & emergency services are not what they are used to compared to the higher quality of treatments in HK.

  23. Good question – – Although not sure how insightful it is. Clearly things are worse now – but for the comparison purpose if you look at today v. 2005

    All the stats are worse except West Vancouver is up (it was really slow for a decade until last year). Listings up about 6% while sales market wide are off 33%. So – ITs’ a big decrease.

  24. bereal@real.com

    Another “HAM” wanting to come to Vancouver!!!

  25. phoenixrising

    I don’t understand why the author of this piece hasn’t thought about moving to or investing in the US. Why Vancouver? Why not Seattle, LA, New York, Florida, or the many other fine cities in the US that you can pick up for a bargain due to the foreclosure crisis? And for investment, nothing beats buying a $50k-60k house in Phoenix with cash and renting it out for $1000/month. That’s 15-20% return!! Don’t believe me? Check this out:

    http://www.redfin.com/AZ/Glendale/6915-W-Mclellan-Rd-85303/home/26958120

    Sure, it needs some work, but at that price you can afford to put in $5-10k to rent it out. Or $20k to flip it and sell it at $100k+. Buy 1, 5, 20, 1000 of them. Cash. None of that m-word that banks use to put you in financial slavery for 35 years.

    I hate people who are so stubborn and never think outside the box. F@#$ Vancouver, F@#$ Hong Kong. The US is the future.

    • bereal@real.com

      American, watch out: Hot Canadian Money (HCM) is coming!!!!

    • The best bit is you can’t go to Phoenix and maintain the property yourself (not without an immigration status that permits you to work in the USA), and you get the pleasure of filing a US tax return every year for the rest of your life.

  26. phoenixrising

    And by the way, who’s still in the playoffs? Not Vancouver, that’s for sure. GO Yotes!

  27. Too bad you weren’t in Hong Kong in the mid-nineties. Then you might not have skipped addressing why there is no longer a cycle. That’s the key piece missing from your experience. You’ve only said what happens on the way up. We saw the way down. The ruin in Hong Kong in the late nineties when everyone’s futures were wiped out along with the value of their RE. The wailing, rending of garments, the gnashing of teeth. It was quite something.

    • AG Sage – You’re right in that I did not experience the Asian financial crisis of the late 90s.

      It’s so important to not rely heavily on past downturns to predict future ones. At each point in time, the circumstances and variables are totally different.

      Hong Kong’s property prices are higher today than they were in 1997. It’s just as out of reach today as it was at the peak of the Asian financial crisis. Do we then forecast a crash now? Maybe….. I don’t know. But it is worth considering an article in this week’s Economist on Hong Kong properties: 60% of private homes in Hong Kong do not carry a mortgage, for the 40% that do carry a mortgage, only about 33% is being used to service that debt (just before the Asian financial crisis the average was 90%).

      That latent firepower just in Hong Kong is enough to indirectly resonate in Vancouver given the invisible links between the two cities.

      Property prices may retreat but a crash is highly unlikely – and don’t forget, Hong Kong property prices are even more unaffordable than Vancouver’s, however, there is an economy here to somewhat support it.

      • Thanks for the thoughtful response. I’ve been reading with amusement the annoyance of the natives in Hong Kong to their new investor class.

        60% of private homes in Hong Kong do not carry a mortgage IN HONG KONG. This is the problem with some of these numbers. The shadow banking system in China is off the books. Chinese show up with cash, but there is no official evidence that it isn’t borrowed (and lots of anecdotal evidence that it is) But even so, worse, actually to lose real money instead of the bank’s money, isn’t it?

        In any event, the future value isn’t dependent on how many people own free and clear today, it’s dependent on future buyers having cash/credit to buy tomorrow. The only difference outright ownership might make is in how many units get pushed onto the market in a rush to the exits. As we are very fond of saying in the U.S., you don’t know who is swimming naked until the tide goes out.

        “It’s so important to not rely heavily on past downturns to predict future ones.” This seems like a restatement of “It’s different this time.” I’m still not clear why you think it can go on forever. It either goes on forever or the cycle repeats. If you know of an alternative, I’d love to see a link to the example. There are long cycles and short cycles and there are interrupted cycles, but there are always cycles.

        The trigger last time blindsided Hong Kong. What did the Thai currency have to do with the price of tea in China, or the price of apartments in Hong Kong anyway? Its interconnectedness is both a boon and a huge risk. I assume you are watching the flow funds closely. I would be. You are making decisions exactly the opposite that I would, but I wish you the best in your endeavors and hope your decisions work out for you. I have very little on the line and talk is cheap after all.

      • We don’t know how leveraged HAMs really are. There is evidence they arent and if poop hits th fan they are likely to jettison their liabilities at home rather than abroad.

        Hong Kong is VERY vulnerable to a downturn in China. More so than Vancouver. But Mainland Chinese buyers only made up 30% of transactions at the best of times and latest stats say around 10-15% (just anecdotal stats as no one can really say for certain).

        In any case, the 60% mortgage free homes says a lot because people in the city have not taken advantage of loans at rates as low as 0.9%.

        We both agree there will be a cycle, just that I feel the retreat will be minimal. Its entirely possible that governments around the world give way to more inflation to make national debts (and in effect household debt) easier to pay off. In that scenario, we may very well see home prices (from a nominal perspective) stay where they are.

  28. I enjoyed your nicely written, sentimental and narcissistic post BLM- I am going to extra-specially look forward to more analysis from you in the coming months as the RE implosion sweeps the city away.

    whiteshoes

  29. You sure ex-vancouverite in Asia is not Cam Good?

    As far as finding a sense of community and street hockey, good luck! Perhaps as others have mentioned, in the true suburbs but no longer on the west side.

    Makes me think of our childhood, not too long ago 80’s/90’s where we did play street hockey, had games of kick the can etc with neighborhood kids. We walked to elementary school in Dunbar and took public transit to high school. Many of the asians then wanted to integrate, learn the language and really fit into the neighborhood. Many of my friends were Chinese and even today many of them are quite astonished of the attitudes of the new immigrants.

    • OK BLM fess up. Are you Cam Good or someone else whose income significantly depends on Vancouver real estate? If you lie, may you die of some syphilis.

      • Actually, I don’t want anyone to confirm a personal detail like their name (i was being tongue-in-cheek). But BLM you owe us the truth about whether you get income, in any way, from Vancouver real estate. I will state, for the record, that I don’t have any income from any source related to real estate and don’t own any Vancouver real estate. So, how about you BLM?

    • In reply to this and your previous post, I am not Cam Good but I am somewhat homesick.

      I haven’t and don’t own any RE in Vancouver as of now nor does my income derive from it. For what it’s worth, I do have more friends and family that are owners than renters there.

      Regarding the detail in subject matter, my background is in banking/finance.

      All I’m trying to do here, as I suggested to VREAA, is to provide readers with another view. A view from Asia which I thought would add much value to the discussions here.

      • Beyond Debt

        For someone who claims to have been away for ten years, you sure have a lot of insight into the local real estate market. Your “hot button” contention that outsider Asians significantly drive this market is poorly supported. On one hand you can provide detailed info about some things, then you turn around and make wild generalizations with no real evidence. Sorry, doesn’t pass the smell test.

      • I’m sorry you feel that way. Certainly I am more a generalist than a specialist in economics.

        If I had a vested interest in Vancouver RE, why would I support a speculative property transfer tax?

        Falling prices would be in my interest as I wish to move back sooner rather than later.

        I just differ from most here in that I believe prices will either stabilize or retreat by 5%-15% instead of a crash.

      • BLM, Vancouver expat in Hong Kong again: For your info, my husband is in banking/finance also. No work to be had….you will be better off in Toronto. He was told that he didn’t have any recent relevant Canadian experience. Very very frustrating.

      • Hi DM, appreciate your advice as usual. A struggle inside for sure.

        For the time being, it feels like the right thing to do to give up earning power for a better environment for the kids and to be close to family.

        Hong Kong is better for the mind. Vancouver is better for the soul. I’m sure the grass will be greener on the other side no matter where I settle.

      • BLM -> You’ve mentioned family here in Vancouver, as well as feeling ‘homesick’ for Vancouver. You didn’t mention either in the body of your post; but your position does read a little different when one knows that.
        Do you think those factors effect your ability to be objective about assessing the Vancouver RE market?

      • By no means am I 100% objective. Very few can be. But if I may, I would say I am more objective than most here and have the the advantage of a view from both sides of the pond (plus more macro data to work with).

        My post, and views, are not outlier anecdotes. They are the views of one of many that make a market.

        For the record I love Hong Kong as much as I do Vancouver but I am Canadian.

    • BLM -> “My post, and views, are not outlier anecdotes. They are the views of one of many that make a market.”

      In other words, you believe that your anecdote is more representative of some kind of majority?
      How do you judge an anecdote to be an ‘outlier’?

      • The singular of anecdote is datum

      • You’re winding us up jesse, you rascal.
        jesse is inverting (in meaning) the now classic bon mot “The plural of anecdote is not data”

      • My views may or may not be the majority. That should not matter too much from an anecdotal point of view.

        All I can say is that there is a lot more optimism in Asia about the economy in this region and Canada too.

        The aspirations, in what is still considered a limited pool, of the upper middle class in China now also include foreign property ownership.

        I only have quality 2nd degree anecdotal evidence from the uber wealthy in Asia (mainly China) to say Canada is one of few alternatives that are attractive for them. For why that is would require another guest post 😉

      • Pardon me. For why that is refers to both Chinese appeal for foreign property ownership and Canada’s attractiveness to China’s new wealth.

        Not easy to respond on by iPhone and during my day job!

  30. reality check

    It is very interesting reading these posts. I can’t believe the number of people on this site who appear to loathe Vancouver. Aside from those who’ve already gone back to where they came from, I just wonder what keeps the others here. I too have lived abroad (mostly Europe) and would say that Vancouver is an exceptional city (beautiful, multicultural, great recreation, culture, food, etc.) I also own a house which i bought in the early 2000s and then rented out. If owning means so much to you people and it seems that it does otherwise why are you on this site, then why don’t you go where you can own. Move to the US and pick up one of the foreclosure bargains.

    • reality check = BLM = Cam Good. Sorry the OP was way too detailed in the subject matter to be some random homesick Vancouverite in Asia. I call BS.

      • In reply to this and your previous post, I am not Cam Good (radio host?!) but I am somewhat homesick.

        I haven’t and don’t own any RE in Vancouver as of now nor does my income derive from it. For what it’s worth, I do have more friends and family that are owners than renters there.

        Regarding the detail in subject matter, my background is in banking/finance.

        All I’m trying to do here, as I suggested to VREAA, is to provide readers with another view. A view from Asia which I thought would add much value to the discussions here.

      • Yes, the BS with this guy is clear. BLM is likely a paid shill. I’m already sick of him and where the heck is Farmer? He’s has the best comments on this blog next to VREAA.

  31. “Closer to home, you have Hong Kong and Singapore but prices there have become some of the world’s most expensive. Further abroad, you have time zone friendly Sydney and Melbourne but their prices too, along with their currency, have risen to what some call ‘frothy’ levels as a result of Chinese trade and Japanese capital. Then there is London, with its property priced in the expensive Sterling and New York with its tough immigration laws. These have been some of the more popular destinations for Asian capital to invest in which brings us to Vancouver.”

    This paragraph doesn’t make sense.

    The Australian dollar (and real estate) is no more frothy than Canadian, and both currencies are considered strongly tied to commodities. As a plus, Australia has higher rates, so if you have residency there and open an account, you’ll see a better return. It has a superior location vs anywhere in Canada, not to mention the weather is nicer.

    Sterling is not “expensive”, it’s been on a downtear in the last few years, and is basically flat over the last 10 (vs USD).

    US may have tighter immigration requirements, but if you’re just diversifying and parking cash, permanent residency is not necessary.

    And if diversification and offshoring your wealth is the goal, then high prices (in HK and Singapore) are irrelevant; merely the safety of the assets is necessary. If gains and investment is the goal, there are far better places to buy real estate for this purpose, to say nothing of a multitude of more suitable investment vehicles.

    This paragraph just seems like a string of poorly thought out facts and factoids.

    • Devore:

      The ‘facts and factoids’ from my post, as I mentioned right at the start, are my views as ‘a prospective buyer of Vancouver real estate and to provide insight into the thinking of several investors I’ve conversed with here in Asia.’

      I don’t have the hard data to back all the views shared in the post.

      Regarding Australia, I had left out the fact that there are foreign ownership restrictions in place. It is certainly a more desirable location as you’ve suggested due to weather and time zone.

      The Australian dollar is much more frothy if you look at its ascent over the last decade against the USD. More importantly, just look at where the interest rates are down under. There are many ways to measure currency strength and higher rates = a stronger currency is one of them because you need a strong economy to support high interest rates.

      The sterling has certainly retreated from its highs but assets in the UK are still very expensive if you have to convert into the pound. Just look at the Big Mac index or think how much more McDonalds costs in the UK, even for Canadians, if you factor in FX.

      Limited upside for the sterling is also sure to be turning away some investments into the UK too. Whereas the CDN has much more upside potential.

      Another way to look at it is if I take a mortgage out in Vancouver at 3% and lock it in for 5 years, all I need is for the CDN to raise 3% against my home currency. If I were Chinese holding RMB, that is pretty much a sure bet given the policies set out.

      We can’t rule out that some of the leverage by HAM are by design and not by necessity. That is why I would not read too much into the leverage that is in place on properties in Vancouver.

      As for the US, anyway you cut it, it is still difficult for many Asians in general to get into. The visa process for non-business visits, I’m told, is tedious.

      As for ‘safety of the assets’, it can really only be achieved through diversification. Currency, asset class and geography are three diversification that HAM makes at one go when buying RE in Vancouver.

      Finally, I don’t doubt there are ‘multitude of more suitable investment vehicles’ out there in Asia with good upside potential at good valuations that I have not discovered yet. What do you have in mind? I can share with you my thoughts as to how someone with Asian assets view them.

      • >Whereas the CDN has much more upside potential.

        This is an interesting and unusual opinion. Is this assumption based on the price of oil?

        >We can’t rule out that some of the leverage by HAM are by design and not by necessity.

        Thanks for the confirmation of that. I’ve been wondering.

      • On CDN upside, that’s right, it is on oil (and more broadly commodities). The markets also expect Canada to rise interest rates faster than the US.

      • What a carry trade? Never.

        The drum is beating louder on the scrutiny of China’s “miracle”. Something to watch in the next 2-3 years.

  32. I moved away in 2002 and came back to Vancouver in 2008. As a specialist physician in this city, I have a nice income, allowing me to buy a house in the Oakridge area.
    However, I have to echo some of the others here that the city is not the same one that we all grew up in. I grew up here in the 80s and 90s and remember a gentler, quieter town. All Vancouver wants to be right now is with the big leagues–the New Yorks, San Frans, Londons, etc. However, it is not in the same league as the above. Vancouver is nice to live in, yes, but it does not have the culture that true world class cities have.
    The other thing is, people here are so obsessed with buying. I suppose it has to do with ego. And that is one thing you’ll notice. After a decade or more of being told by the mainstream media, the government, and ourselves that we’re the best place in the world to live, we have bought into that craze. Fact is, Vancouver has problems, lots of it. I’ve lived in many other major cities in the US and have been to Europe and Asia and Vancouver has the same problems that other big cities have..

    The other thing here is, nobody wants to rent. People complain they are priced out of the city, but in actual fact, you can rent a nice basement suite in a nice part of town for dirt cheap compared to San Francisco or NYC. If you want the lifestyle and the good schools in Vancouver, and the short commutes and can’t afford to buy, then rent. It is not throwing your money away. Most people in the big city rent anyway.

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